Is European austerity really failing?

May 19, 2013

Is European austerity failing?

I have mostly accepted the claims of many media and political pundits about austerity programs in Europe failing. Many of these same pundits are then using this claim as the basis for recommending America further ramp up its borrowing and spending to help speed the healing of our economy and create jobs.

These calls for increased borrowing and accumulating even more debt for future Americans are usually tempered by the phrase, "until the economy recovers". To which I respond...what if it doesn't? What if the twin forces of automation and low cost labor from less developed nations simply continues to result in fewer available jobs in all developed nations, including America, for the foreseeable future?

Lately I have begun to question my almost automatic acceptance of harm being caused by austerity in Europe. It seems to me claiming austerity in a country is failing is just about as valid as claiming a family having to cut back on spending it can no longer afford is painful for them. Duh! Has austerity caused some pain for many Europeans? Undoubtedly! However, on the positive side, it has certainly slowed down the continuing accumulation of debt...which all of these countries have in common with America. I also think it's very likely the pain it causes current citizens will help reduce pain for future generations. The bottom of most developed nation's deep debt and joblessness hole wasn't reached overnight, and climbing out will take time and shared sacrifices for many years, and perhaps even decades.

America went through a severe and long-lasting depression beginning in 1929, and full recovery didn't happen until the end of WW II. Clearly the immense spending to support the war helped to restore our economy. However, we must also remember the rest of the developed nations manufacturing capacity had been mostly destroyed by the war, and as a result, America had major competitive advantages from the late forties until the early 70s. These advantages fueled what became the golden age of America for the middle class.

Parents of my generation grew up during the great depression. Most had personal experience with deprivation and hardship. But, they also seemed to take great pride in having the self-reliance to survive. It affected the way most of these depression era folks lived for the rest of their lives. They never forgot their deprivations, always saved for rainy days, and only bought what they needed and could afford...not everything they wanted.

Sadly, the lessons the depression era generation and their leaders learned were quickly forgotten by succeeding generations. Since the 1970s, many of our citizens and most government leaders, along with those throughout Europe, failed to apply the lessons learned by the depression era generation. They failed to save for rainy days, and bought too much on credit. Worse, our elected learned they could ensure staying in power by spending our tax dollars in ways which mainly favored the powerful special interests. Then to finally cap our elected's incredible foolishness and greed, they found they could leverage the entire process by borrowing, and then leave future generations of American citizens and elected to deal with the aftermath.

I do not know of a single rational head of a family or business who, after spending themselves into a deep hole, would decide the best solution is to just keep adding debt. Sooner or later the piper has to be paid. At best, the payback time frame for additional borrowing will only be slightly delayed...but the total size of the debt will only be more painful to manage in the future.

So is austerity really failing in Europe? It is if the main objective is to spare current citizens from any and all pain caused by continuously overspending. And, It is for elected officials desperately trying to stay in power, because the voters now clearly understand their failures. Hopefully, the worst case for these failed politicians will result in their firing.

Will most American citizens face suffering similar to Europeans? It's already happening to millions of Americans, and I'm afraid it's very likely to increase. Perhaps for a few succeeding generations, many will once again learn to live more prudent lives by saving for a rainy day and never overspending resources they don't have. Hopefully, they will also insist their politicians do the same.

The most important question to be answered is, do we honestly trust our leaders will spend additional borrowed money wisely? Really...do we also believe in fairy tales?

I think we should all demand our elected leaders prove they can focus on massively reducing wasteful spending before we even think about supporting even more borrowing. The Simpson-Bowles plan would be a great place to start. Do you ever wonder why this logical and non-partisan plan is so difficult to implement? Hint...the special interests and politicians don't want the gravy train to slow down!

These are my opinions. What do you think?

Mike Tower